Chase Cornwell
Atkinson 10:10-11:00
April 7th 2014

On March 8th, 2014, a Boeing 777-200ER left the runway presumably for the last time. The Malaysian airliner, carrying 239 people, went off radar at 01:20am MST after departing from Kuala Lumpur International Airport. It was scheduled to arrive in Beijing at 6:30 a.m. the same day, however, Subang air traffic controllers lost contact with the plane shortly after departure. This ongoing investigation has led to further speculation on possible causes and the role of insurance in a loss of this magnitude. Although unlikely, aviation exposures have the potential to result in large property damage and loss of human life. Malaysia flight 370 illustrates the importance and principles of insurance in the aviation industry. Through the application and relevance of Principles of Risk Management and Insurance, this disaster can be better understood from an insurance standpoint.
“Pooling or the sharing of losses is the heart of insurance. Pooling is the spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss,”(Rejda 20). This foundation is the essence of insurance and in this case, the key factor in indemnifying the families of those onboard Malaysia flight 370. ‘“It’s not an issue of whether families will be compensated, it’s a question of how much and when’”, stated by Monica R. Kelly, an American aviation lawyer who indicates that a court in the United States could potentially award millions of dollars per passenger in a lawsuit against the Boeing Company, which built the missing jet”(Wong, Edward).
This situation is the result of a pure risk, from both a property and liability standpoint. Pure risk is the chance of either a loss or no loss to take place where there is no chance of a gain. In the airline industry, risk is assessed as a pure risk due to the absence of a positive result. Both direct loss, or “financial loss from damage to property” and indirect loss, “losses that arise from loss of use of property” have been or will be subject to this catastrophic loss (Rejda pp.6-10). Malaysia airline’s loss of income and profits due to the missing Boeing 777-200ER is an indirect or consequential loss. Pure liability risk, “the risk that you will be financially responsible for someone else,”(Rejda10) is what Boeing and Malaysia airlines are currently facing. “Experts estimate that in U.S. court, Malaysia Airlines could end up paying between $8 million and $10 million per passenger. Compensation abroad, however could be just a fraction of that, according to CNBC”(ibtimes).
Millions of dollars have been spent in search of the down plane. In an effort to retrieve the black box located inside the aircraft, such efforts have come up short. Without the black box, it is very unlikely that we will know the cause or peril of this accident. Insurance companies in particular have instilled the use of black boxes and transponders for search and retrieve efforts and risk control purposes. Black boxes and tracking equipment are examples of loss reduction in the case of a downed aircraft. Although the transponders were turned off, the black box is still capable of informing the NTSB, National Transportation Safety Board of a cause of the crash.
“Pouria Nour Mohammad Mehrdad and Iranian Delavar Seyedmohammaderza boarded the now missing Malaysia Airlines MH370 with stolen passports”( Keating, Joshua). There has been a lot of criticism over the integrity and security of the Kuala Lumpur International Airport and its role in the disappearance of flight 370. Without any knowledge as to why the plane went down, speculators have turned to the possibility of a terrorist attack. Running stolen passports through an Interpol database is considered a form of loss prevention Malaysia airlines did not perform.
Finally, reputational risk is a component of Enterprise Risk Management (ERM) and an issue that both Boeing and Malaysia airlines face. The public’s opinion can change as the result of an event or how a company handles a given situation. With unsuccessful search efforts and vague media relations, Malaysia airlines and the Malaysian government have been the subject of much criticism.

Works Cited

Keating, Joshua. "Why Did Two Iranians Board Malaysia Flight with Fake Passports?" The Dallas Morning News. N.p., n.d. Web. 06 Apr. 2014.
"Malaysia Airlines, Boeing To Pay Millions To Families Of Flight MH370 Passengers, But Amounts Could Vary Widely." International Business Times. N.p., n.d. Web. 06 Apr. 2014.
Mullen, Jethro, Tom Watkins, and Steven Jiang. "Missing Malaysia Airlines Flight 370: What We Know and Don't Know." CNN. Cable News Network, 01 Jan. 1970. Web. 04 Apr. 2014.
Rejda, George E. Principles of Risk Management and Insurance. Boston: Pearson/Addison Wesley, 2008. Print.
Wong, Edward, and Kirk Semple. "With Plane Still Missing, Legal Moves for Payouts Start." The New York Times. The New York Times, 01 Apr. 2014. Web. 04 Apr. 2014.